Citizens' Q&A

 
 
  A CEER Concept paper on Security of Gas Supply 

What is security of gas supply?  

Natural gas is an important energy source in the EU. Most gas supplies in the EU are imported from the third countries. Some importing countries are reliant on a single source or a single transport route for their gas. Gas flows can be endangered through disruptions along the route caused by infrastructure failure or by political disputes between a producing country and downstream countries. Security of gas supply (SoS) refers to efforts to help ensure that gas flows to consumers.

What does the report propose for security of gas supply?

CEER believes that well-functioning gas wholesale markets can deliver the best outcomes for customers. In order to allow the market to work as long as possible, we propose that market-based measures should be allowed to continue as long as possible when an SoS situation arises, before shifting to mitigating measures. Where interventions are introduced, the impact on the market should be understood and minimised. The report also covers the benefits of regional cooperation, of results-based requirements for gas supply standards and of involving energy regulatory authorities in issues of security of supply (as we closely oversee the companies managing our gas networks).

Our work was done in the context of the European Union's review of its law on gas security of supply (Regulation (EU) No 994/2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC). We hope it will serve as input to policy makers.

How does it work?

This CEER concept paper describes possible measures to prevent gas supply crises. In this so called “prevention phase”, energy regulators, responsible authorities and other parties can take many different actions which help prevent a crisis. In the prevention phase the aim is to enable the market to be as resilient as possible without interventions by authorities which can hamper market functioning. Sufficient (efficiently used) infrastructure is also needed to ensure that gas can access markets. The development of cross-border pipelines which allow gas to flow in both directions between Member States in certain regions could be very important to support security of supply. In addition, alternatives for sourcing and re-routing the gas flows can allow the market to meet SoS requirements. Other tools, such as facilities for storing gas as well as coastal terminals which receive Liquefied Natural Gas (LNG) help reduce Europe's dependence on dominant suppliers.

When a gas supply crisis occurs, this is called the “mitigation phase”. Before entering into this phase, it is important that all responsible authorities have set up well-functioning cross-border cooperation and have ready-to-use emergency plans to handle the crisis.

We believe solidarity principles should be ready to use in all Member States. Also, access to functioning markets and operational assistance agreed upon between Transmission System Operators (TSOs) are important to support Member States in an emergency situation. Solidarity principles should be clear, transparent and agreed upfront between Member States.

Why is this important for energy customers? What is the impact on energy customers?  

Most Europeans need gas in one way or the other. End consumers use gas in their households for heating and cooking, industrial consumers use gas in production processes and electricity producing companies use gas to fuel their gas-fired power plants. If security of gas supply is threatened and gas supply is cut, households risk being left without heating in winter if gas supplies. In particular for those consumers who cannot switch to alternative sources of energy, it is very important to ensure a high level of security when it comes to gas supply.

By setting out a concept for security of gas supply, CEER proposes a framework which aims to achieve an appropriate balance between a sufficiently high level of security of gas supply and keeping the costs of gas at a reasonable level for consumers. 

CONTACT
brussels@ceer.eu

Tel: +322 788 7330

 

Citizens' Q&A

 
 
  CEER Monitoring Report on Implementation of the Gas Storage Guidelines of Good Practice and the GSE Transparency Template

What are the GGPSSO and the Transparency Template?  

In 2011, CEER published updated Guidelines of Good Practice for Gas Storage System Operators (GGPSSO). Unlike electricity, natural gas can be bought and stored in large quantities for a long period of time, until it is needed (for example, during a very cold winter or if gas supply is unexpectedly cut off). Storage operators (SSOs) manage the facilities where such gas is kept and are expected to follow a number of rules when doing so. The voluntary rules in the GGPSSO aim at promoting open, fair, non-discriminatory and transparent access by third parties to these facilities across Europe.

The Transparency Template is a (voluntary) harmonised template for the publication of important information on SSO websites. CEER and Gas Storage Europe (GSE) worked together to develop GSE’s Transparency Template in 2012/2013. The objectives of the Transparency Template are to help SSOs to fulfill EU transparency requirements requirements, meet customers’ needs and ensure that the information published is easily accessible and comparable across European storage facilities.

What does the report propose for GGPSSO and Transparency Template?

The report analyses implementation of the GGPSSO and Transparency Template by European SSOs. In many cases, the results are positive and CEER welcomes the efforts made by SSOs. There are, however, a number of areas where improved implementation is necessary to ensure that European storage markets are functioning effectively. The report encourages European SSOs to work towards full implementation these important initiatives.

How does it work?

This monitoring report is based on responses to surveys among CEER Members in late 2014/early 2015. The report is divided into two main sections. The first covers our monitoring of implementation of the GGPSSO. The second section covers the Transparency Template. Each of these sections includes the background to the relevant initiative; the process undertaken by CEER to monitor implementation; responses to the CEER survey; detailed analysis of implementation; and our main conclusions.

The findings of this monitoring exercise could be used by National Regulatory Authorities (NRAs) and policy-makers as they work towards developing and maintaining well-functioning storage and flexibility markets in Europe.

Why is this important for energy customers? What is the impact on energy customers?  

Gas storage is a key component of Europe's energy market. Stored gas provides a flexible solution when additional energy is needed by the market to satisfy demand. It can compete with other sources of flexibility to meet customers’ needs. Gas storage also plays a crucial role in ensuring European security of supply. Therefore, it is important that the gas storage market in Europe is functioning effectively.

Together, GSE’s Transparency Template and CEER’s GGPSSO are important initiatives that aim to promote open, fair, non-discriminatory and transparent access to storage facilities across Europe. By monitoring the implementation of the GGPSSO and Transparency Template, this report helps to ensure that European storage markets are working in the interests of consumers. 

CONTACT
brussels@ceer.eu

Tel: +322 788 7330

 

Citizens' Q&A

 
 
  CEER Final Vision on Regulatory Arrangements for the Gas Storage Market

What is the gas storage?  

Gas storage refers to a spectrum of different facilities where natural gas can be stored for later consumption. Most gas storage facilities in Europe are underground in salt caverns, depleted gas fields or aquifers.

Gas storage plays an important role in balancing supply and demand in Europe and ensuring security of supply. Demand for gas is subject to significant variations (e.g. seasonal). This variable demand pattern requires flexible gas supplies capable of varying flows. Gas storage allows market participants to inject gas from the transmission system to the storage facility at times of low prices/demand and withdraw gas from the storage facility at times of high prices/demand. Gas storage competes with other flexible sources of supply, such as Liquefied Natural Gas (LNG) and interconnection, to provide this flexibility to the market.

What does the report propose for gas storage?

This document considers the role of storage both in efficient market functioning and in security of supply situations. It proposes a set of regulatory and policy options to ensure that storage can compete on a level playing field with other flexible sources of supply. It also proposes that well-functioning markets are best placed to value and deliver security of supply. In developed markets, security of supply is delivered through wholesale market price signals and security of supply interventions are not necessary. Where markets are not functioning efficiently, however, interventions may be necessary in order to deliver security of supply.

How does it work?

This paper sets out final Council of European Energy Regulator’s (CEER’s) Vision on the Rregulatory Aarrangements for the Gas Storage Market (Ref: C15-GWG-119-03).

Why is this important for energy customers? What is the impact on energy customers?  

CEER believes that functioning wholesale markets can deliver the best outcomes for customers. By setting out a vision for the regulatory arrangements for the gas storage market, CEER aims to ensure that gas storage can continue to play an important role for customers in the most efficient way by competing with other sources of supply and by helping to deliver appropriate levels of security of supply. 

 

CONTACT
brussels@ceer.eu

Tel: +322 788 7330

 

Citizens' Q&A

 
 
  CEER Status Review on monitoring access to LNG terminals in 2009-2013

What is LNG?  

LNG stands for Liquefied Natural Gas. LNG is natural gas that is cooled to about -162ºC until it becomes a liquid and is then stored around atmospheric pressure. Specially constructed boats can transport LNG around the world from countries where it is produced, such as Qatar, to areas that need it to meet gas consumption.

Europe is one area that depends on imports from other countries for much of its gas needs, some of which reaches us in the form of LNG which is now a growing part of our energy mix. This is helping to both ensure we have the amount of gas we need for consumption as well as to diversify our sources of gas to reduce the dependence on any one provider (increasing security of supply). Importing LNG increases the number of sources of gas reaching Europe which in-turn helps to promote price-based competition which should ultimately translate into clearer prices for customers.

Countries which import or export LNG do so using LNG terminals, These terminals are capable of both converting natural gas into LNG for transportation as well as allowing it to expand and re-convert into gas (a process known as regasification‘). The terminsls are usually connected to storage and pipeline distribution networks.

Gas supplies that are processed via LNG terminals must have a contract with the terninal’s system operator in order to use the regasification and storage services. EU legislation requires that these LNG terminals are also accessible to third parties (shippers or other gas companies).

As a result, LNG terminals play an increasingly important role in European gas markets as they play a key role in the transportation of LNG around the world.Transparency and fair rules for access to terminal services arecrucial to promote a competitive gas market and security of supply across Europe.

What does the report prosose for LNG?

A number of recent developments in the global LNG markets have led to a lower utilisation of current LNG terminals that foster the development of new services in European LNG facilities. These include a  decrease in gas demand in Europe, the growing demand for LNG in Asian and South American markets as well as the changing role of gas in the transition to a low-carbon generation mix.

In addition, recent events in Russia and Ukraine have been taken into account in May 2014 when the European Commission adopted European Energy Security Strategy. One of the key actions to increase the European capacity to overcome a potential disruption to energy supplies is taking advantage of the potential of Liquefied Natural Gas.

The report focuses on business development, consolidation and new tendencies in the European LNG terminals  in the period2009-2013. The level of capacity utilisation, spot contracting, secondary market functioning, application of Congestion Management Procedures (CMPs) and new services offered in the terminals, as well as new uses of LNG are analysed.

How does it work?

The role played by LNG demand in Europe depends mostly on the geographical situation, capacity of the LNG import terminal, prices of LNG versus natural gas, level of gas demand, alternative sources of supply flexibility and downstream market development in every Member State. However, the contribution of LNG and associated facilities to security of supply through diversification of sources, routes and competition are common in all Member States.

The market share of LNG in total gas supplies increased in the beginning of the period but has decreased since 2011.The regasification and storage capacity have increased by 44% and 39% respectively since 2009, with new terminals coming on line and several under construction in Europe.

The European average rate of capacity contracted and used increased in 2009-2010, but both ratios have decreased since 2011. The decrease is more noticeable in the use of the terminals regasification capacity, which is around 25% of the technical capacity in 2013 (accounted for 53% in 2010).

At those terminals that are almost fully booked the unused capacity was released to the market. However, the released capacity was hardly contracted, suggesting that generally there was no contractual congestion. The subscription of slots in the secondary market or coming from CMP applications and also the number of spot cargoes unloaded have been reduced since 2011.

By contrast, the number of terminals that offer reloading activity has increased since 2011. The service was introduced in response to demand from terminals users to be able to move the LNG ships to more attractive markets. This fact proves that the European terminals have adapted their facilities to the changes in a global LNG market and the low rates of regasification capacity utilisation.

The challenges and innovation in the LNG market are related to new services offered in the terminals, i.e. truck loading, small ship loading, transshipment, storage as unbundled service and bunkering. These activities promote the new uses of LNG as fuel for ships and long-haul trucks and are in line with the European proposals for the development of alternative fuels and their infrastructure.

Why is this important for energy customers? What is the impact on energy customers?

While LNG infrastructure development is of key importance to secure gas supplies and to facilitate the development of competition for the benefit of end-customers, effective utilisation of LNG terminals also needs to be ensured to enhance competition and improve quality of service. This will help to avoid the development of any   inefficient infrastructure, since investments are generally passed on to consumers through their energy bills.

Changes in the global LNG market and the low rates of regasification capacity utilisation in Europe (due to low demand and more attractive markets elsewhere), have led to European terminals adpating their facilities. New services are being offered and new uses of LNG are being promoted to facilitate compeition in the European gas market. This competition will utlimately enable better choices for final consumers.

CONTACT
brussels@ceer.eu

Tel: +322 788 7330

 

Citizens' Q&A

 
 
  CEER Monitoring Report on the Implementation of the Transparency Template in the European LNG Terminals

What is LNG?  

LNG stands for Liquefied Natural Gas. LNG is natural gas that is cooled to about -162ºC until it becomes a liquid and then stored around atmospheric pressure. The natural gas is a hydrocarbon that mainly consists on methane, although it usually also contains a variable proportion of nitrogen, ethane, CO2, H2O, butane, propane, mercaptanes and traces of heavier hydrocarbons. This proportion varies depending on the fields in which the gas is found. Methane may constitute up to 97% of natural gas.

Europe depends on imports for much of its gas needs, some of which reaches us in the form of LNG. This form of gas is a growing part of our energy mix in Europe helping 1) to ensure we have the amount of gas we need for consumption; and 2) to diversify our sources of gas so as to reduce dependence on any one provider (security of supply). It also promotes price-based competition (by virtue of having more competing sources of gas) which should ultimately translate in clearer prices for customers.


Each LNG terminal can accommodate a certain capacity of LNG for regasification and storage. Therefore, gas supplies that are processed via these terminals must be contracted (or “booked”) with the LNG terminal’s system operator (LSO). EU legislation requires these terminals to be ‘accessible’ to third parties, that is to say to shippers or other gas companies which are not associated to the company operating the LNG terminal. Regulators therefore monitor how transparency of information is functioning at LNG terminals.

What does the report prosose for LNG?

CEER considers that organised, structured information which is published in a harmonised manner is crucial for users to access the services offered in LNG terminals.

In 2012, GLE (the European LNG Infrastructures group) and CEER launched the Transparency Template (TT) as a tool aiming at facilitating access to LNG terminals, once implemented on the LSOs’ websites. The objective is to provide users with the information needed in an accessible way, also allowing LSOs to comply with European regulation.

This report presents a monitoring exercise on the implementation of the Transparency Template on the European LNG terminals’ websites.

How does it work?

This Monitoring Report reveals that, in general, most terminals have properly implemented the template (15 out of 18 terminals in operation in Europe). This report focuses on the information required under the defined TT, but it is recognised that the information gaps (in relation to specific terminals) may not be reported on the LSO website but through alternative formats. Regulators propose to continue working with LSOs to encourage the adoption of the TT and/or seeking further clarifications/additions on the information they publish on their websites.

In order to enable users to easily find relevant information, the template needs to be clearly accessible on the terminal’s website. The transparency templates published are mostly located in easily accessible sections of the respective LSO’s website: 11 out of 15 templates are featured on the homepages of the LSOs and all of them can be reached from the GLE homepage.

In addition, the presentation and structure of the information is important to facilitate users’ ability to navigate this information. 9 out of 15 templates follow the same design (macro areas and submenus) as the original model created by GLE. The template has the same structure (macro areas, submenus and topics) in 6 out of 15 templates.

On average, 70% of the information included in the TT is published to a satisfactory standard by the 15 terminals.

Accurate and up to date information is of fundamental importance for users to be well informed. Despite this, most of the templates do not show the date when information was made public.

Furthermore, our research found that there is direct access to the specific topics in 69% of cases. In addition, the information is published under the right submenu in a similar percentage (67%).

Why is this important for energy customers? What is the impact on energy customers?

While LNG infrastructure development is of key importance to secure gas supplies and to facilitate the development of competition for the benefit of end-customers, effective utilisation of LNG terminals also needs to be ensured to enhance competition and improve quality of service, in order to avoid inefficient infrastructure, since investments are generally passed on to consumers through their energy bills.

Transparency for LNG terminal users is of paramount importance to provide transparent, non-discriminatory and objective access to the services offered in these facilities. Non-discriminatory access will facilitate competition in the European gas market and competition will enable better choices for final consumers.

CONTACT
brussels@ceer.eu

Tel: +322 788 7330

 

Citizens' Q&A

 
 
  Changing gas storage usage and effects on security of supply

What is the gas storage and why do we need it?  

The demand for gas in European countries (especially for households) differs throughout the year. For example: during the winter time gas demand is higher than during the summer (seasonal difference), while normally more gas is used during business days in comparison to the weekends (weekly difference). Because demand and supply of gas differ, suppliers of gas have the responsibility to ensure that the amount of gas used by their customers (withdrawal from the grid) is always equal to the amount of gas that is injected into the gas grid. In gas terms: a supplier must balance its portfolio and to so it needs to have access to what is known as flexibility.

There are several flexibility tools available in the market. The most known tools are flexible gas production, import contracts, line pack, interruptible contracts, hub related products and storage facilities. Suppliers who book storage capacity inject a certain amount of gas in a facility and withdraw this gas whenever they need the gas to balance their portfolio. However, storage facilities are also used for trading purposes (for example arbitrage) and for Security of Supply reasons (stored gas is only used to meet gas demand if no other gas is available anymore).

Why did CEER launch a project on changing storage usage?

During the spring of 2013 CEER, noticed that the amount of gas stored in storage facilities   – in comparison to previous years – was being reported as being very low. Storage facilities have no use if no gas is actually stored in these facilities. Given the importance of gas storage, CEER decided to get a more detailed understanding of these recent events. The aim of the project was to understand why less gas was stored in storage facilities during the last storage season and whether it can be expected that this will also be the case in the future. To understand why less storage capacity was booked and to gain an outlook on future booking behavior, CEER has drafted a questionnaire that was sent to storage users and storage operators. In the interim report these two questions are answered.  

What  are CEER next steps once the interim report is published?

During the Gas regulatory forum (a meeting where relevant stakeholders in the gas market  meet), CEER has presented the interim report. Following this presentation, CEER was invited to start a strategic discussion and further explore the use (and future role) of storage facilities. CEER will perform this strategic discussion in close cooperation with Gas Storage Europe (representing storage operators). Also, CEER will seek close interaction with European stakeholders. The results from this follow up research will be used to draft a final report (to be published in April 2014).

Why is this important for the energy customers? 

Natural gas storage plays a vital role in maintaining the reliability of supply needed to meet the demands of consumers. Gas storage helps to ensure that any excess supply delivered during the low demand is available to meet the increased demand periods. In addition, gas storage can be seen as a short term solution in case of gas crisis.

Storage is in some countries the main tool for security of gas supply. The fulfill this role of a reliable source in case of supply disruption or shortages sufficient storage capacity has to be in place and also sufficient gas has to be stored by the suppliers.  

CONTACT
brussels@ceer.eu

Tel: +322 788 7330

 

Citizens' Q&A

 
 
  CEER Blueprint on incremental gas capacity

What is incremental capacity? 

Capacity refers to the amount of natural gas that a gas network can contain and transport. Incremental capacity refers to the additional capacity that is needed on top of the capacity available at an existing interconnection point. Such “points” are either cross-border gas connections between two countries or points within a country where gas enters or exits a network (and which are subject to certain rules for booking the gas capacity on that network).

As gas consumption grows and flow patterns change, it can occur that the existing networks and infrastructure no longer meet the capacity needs of a market, in which case decisions need to be taken on whether to invest in incremental capacity, taking into account technical, economic and security of supply considerations. Investments in incremental capacity are considered “market-based” when network users are invited to make binding commitments to purchase capacity on a long-term basis before any decision to invest is taken. The collection of binding commitments aims at confirming the market’s need for capacity and ensuring that the project will yield sufficient revenues to guarantee its financial viability.

What does the report propose for incremental capacity?

CEER’s Blueprint on Incremental Capacity defines clear principles and processes for the identification and allocation of incremental capacity, with the objective to allow for sound investment decisions, supporting the development of competitive wholesale and retail markets. The Blueprint takes account of past experiences with market-based investments and intends to translate the lessons learnt into concrete guidance on how to conduct such processes in the most transparent and coordinated manner. In addition, the Blueprint gives due consideration to the new European-level regulatory framework, which sets out binding rules for the allocation of existing capacity, and presents consistent design approaches for the allocation of incremental capacity.

How does it work?

The Blueprint gives guidance on how to conduct each step of market-based investment procedures, starting with the introduction of criteria for identifying a need to offer incremental capacity.  Acknowledging that different circumstances may require adjustments with regards to how incremental or new capacity is offered to the market, CEER has developed and compared several procedures for allocating capacity. The Blueprint also recommends how to design an economic test in order to verify that a sufficient proportion of the investment costs are underwritten by shippers’ commitments. The interactions with the determination of the transmission tariffs paid by network users are also explored. In addition, the blueprint identifies the areas where coordination between the adjacent regulatory authorities and transmission operators is necessary in order to have successful outcomes. This document aims to contribute to the discussion by formulating proposals and approaches which could be incorporated into the European legally binding framework.

Why is this important for energy customers? What is the impact on energy customers?

Infrastructure development is of key importance to secure gas supplies and to facilitate the development of competition to the benefit of end-customers. It also needs to be ensured that capacity developments are properly sized in order to avoid stranded assets, as some of the costs of infrastructure investments are generally passed on to consumers through their energy bills. This socialisation of the investment costs – via “transmission tariffs” - can potentially lead to price increases for end-customers. The Blueprint therefore seeks to ensure that any investments are cost-efficient, taking into account the supply and security needs of the energy system and the overall welfare of society as a whole. In this regard, establishing a process to identify if, and how much, additional capacity is needed by the market can help to determine what, if any, investments are appropriate.

CONTACT
brussels@ceer.eu

Tel: +322 788 7330

 

Citizens' Q&A

 
 
  CEER Status Review and evaluation of access regimes at LNG terminals in the EU

What is LNG? 

LNG stands for Liquefied Natural Gas. LNG is natural gas that is cooled to about -162ºC until it becomes a liquid and then stored around atmospheric pressure. The natural gas is a hydrocarbon that mainly consists on methane, although it usually also contains a variable proportion of nitrogen, ethane, CO2, H2O, butane, propane, mercaptanes and traces of heavier hydrocarbons. This proportion varies depending on the fields in which the gas is found. Methane may constitute up to 97% of natural gas.

Europe depends on imports for much of its gas needs, some of which reaches us in the form of LNG. This form of gas is a growing part of our energy mix in Europe, and helps: 1) to ensure we have the amount of gas we need for consumption; and 2) to diversify our sources of gas so as to reduce dependence on any one provider (security of supply). It also promotes price-based competition (by virtue of having more competing sources of gas) which should ultimately translate in clearer prices for customers.

What does the document propose for LNG?

This document (C12-LNG-15-03) presents an assessment of access conditions to LNG terminals in Europe by users, taking into account the recent developments in the EU market. The main goals of this work are to inform stakeholders of the situation over the past three years (2009 - 2011); to show the compliance of LNG operators; and to continue working on areas where regulations and procedures can be improved or further harmonised.

How does it work?

Analysis of data collected shows that the share of LNG in total gas supplies has been on the rise. In the countries analysed for the period 2009-2011, LNG’s share increased from 28% to 30%. In addition, Europe’s regasification and storage capacity of LNG has increased, with new terminals coming on line and several under construction. Although it is worth noting that the average rate of LNG terminal utilisation in Europe was 68%, 75% and 67% in 2009, 2010 and 2011, respectively. In conclusion, the European LNG market is considered as a consolidated market, i.e. market that has not presented significant variations in the period analysed in the current European gas context.

From a European perspective, there is available capacity to contract, either on the primary market or through the application of CMP leading to capacity being brought back to the market. The Status Review reveals that all terminals have properly functioning CMP provisions, even though the capacity released is not often subscribed by other shippers. A secondary market is also available in some terminals and has been used in a few of them, (those that are most contracted). This could be a good indicator: as one can expect, in terminals with available capacity all operations are concentrated in the primary market, whereas CMP and secondary market are working better in more congested facilities. It therefore pursues the final objective of enhancing competition and achieving a single market at European level.

Why is this important for energy customers? What is the impact on energy customers?

While LNG infrastructure development is of key importance to secure gas supplies and to facilitate the development of competition for the benefit of end-customers, effective utilisation of LNG terminals also needs to be ensured to enhance competition and improve quality of service, in order to avoid inefficient infrastructure, since investment are generally passed on to consumers through their energy bills.

CONTACT
brussels@ceer.eu

Tel: +32 27887330

 

Citizens' Q&A

 
 
  Evaluation of Responses to the Public Consultation Paper on Market-Based Investment Procedures for Gas Infrastructure: Issues and Approaches

What is incremental capacity? 

Capacity refers to the amount of natural gas that a gas network can contain and transport. Incremental capacity refers to the additional capacity that is needed on top of the capacity available at an existing interconnection point. Such “points” are either cross-border gas connections between two countries or points within a country where gas enters or exits a network (and which are subject to certain rules for booking the gas capacity on that network).

As gas consumption grows and flow patterns change, it can occur that the existing networks and infrastructure no longer meet the capacity needs of a market, in which case decisions need to be taken on whether to invest in incremental capacity, taking into account technical, economic and security of supply considerations.

What does the document propose for incremental capacity?

CEER is convinced that the market needs a clear and transparent mechanism to trigger investments in incremental capacity, and that the decision to invest should be based on the results of an economic test. However, the exact design of the incremental capacity process and of the economic test still require further consideration. CEER‘s work is intended to lead to the presentation of a “Blueprint for Incremental Capacity” at the Gas Regulatory Forum in Madrid in April 2013.

How does it work?

The purpose of the work undertaken by CEER is to develop EU processes which would allow for sound investment decisions. CEER is building on lessons learnt from past processes applied in Europe (so-called open seasons and integrated auctions), which provide valuable insights into how market demand can be tested and translated into successful market-driven investments. It also takes into account the changes introduced by new European-level market rules on how capacity is allocated (“Gas Capacity Allocation Mechanisms Network Code”) and in particular the use of auctions for the allocation of long-term existing capacity. Allocation refers to the contractual arrangements between network operators and gas sellers for ‘reserving’ a given amount of a gas pipeline’s volume capacity for gas which they have bought/sold and which will need to be transported through that pipeline at a given time. CEER’s objective is to ensure the overall regulatory framework is consistent and allows for efficient investments, supporting the development of competitive wholesale and retail markets.

Why is this important for energy customers? What is the impact on energy customers?

While infrastructure development is of key importance to secure gas supplies and to facilitate the development of competition to the benefit of end-customers, it also needs to be ensured that capacity developments are properly sized in order to avoid stranded assets, as some of the costs of infrastructure investments are generally passed on to consumers through their energy bills. This socialisation of the investment costs – via “transmission tariffs” - can potentially lead to price increases for end-customers. The regulatory framework therefore seeks to ensure that any investments are cost-efficient, taking into account the supply and security needs of the energy system and the overall welfare of society as a whole. In this regard, establishing a process to identify if, and how much, additional capacity is needed by the market can help to determine what, if any, investments are appropriate.

CONTACT
brussels@ceer.eu

Tel: +32 27887330